The UK government has sold a further 1 per cent stake in Lloyds Banking Group as it continues to reduce its holdings in the bailed-out lender ahead of the upcoming general election in May.

The share sale, worth more than £500million, means the government now owns just below 22 per cent of the bank, down from 40 per cent in 2009 when it was bailed out by the taxpayer, and follows on from other small stake sales made over the past few months.

Chancellor of the Exchequer George Osborne said the Treasury has now recovered a total of £9billion of the £20billion injected into Lloyds at the height of the financial crisis and that the money will be used to pay down the UK national debt, as revealed in last week's Budget.

Stake sell-off: The UK government owns just less than 22% of Lloyds after reducing its stake by a further 1%

A pre-election sale of shares in Lloyds to ordinary members of the public was ruled out last year by Osborne, but in last week's Budget he pledged to sell a further £9billion shares in the lender.

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A Lloyds spokesman said: ‘Today's announcement shows the further progress made in returning Lloyds Banking Group to full private ownership and enabling the taxpayer to get their money back.

‘This reflects the hard work undertaken over the last four years to transform the group into a low-risk and customer-focused bank that is committed to helping Britain prosper.’

The government launched a programme in December to gradually reduce its holdings in Lloyds and said then that it hoped to sell off a stake of up to 5 per cent in the lender over the following six months to raise about £3billion.

The Treasury has said all shares sold through the trading plan so far have fetched more than the 73.6p per share average price the previous government paid for them in 2008.

The latest share sale comes shortly after the bank unveiled plans to reward shareholders with a dividend of 0.75p, its first payout in more than six years.

The payout was unveiled as Lloyds published full year results at the end of last month which saw it achieve pretax profit of £1.8billion, up from £415million in 2013.

Share sale: In last week's Budget George Osborne pledged to sell a further £9billion worth of shares in Lloyds

Earlier this month George Osborne admitted in an interview with the Financial Times that he also wants to offload the government's stake in fellow bailed-out lender RBS as quickly as possible after the election although this could be tricky given it reported a loss of £3.5billion for 2014.

Osborne also said his handling of struggling RBS had been wrong, adding that he allowed himself to be persuaded by its former chief executive Stephen Hester that the best way for the Government to get its money back was by gambling on big returns from the group's s investment bank.

RBS, which is 80 per cent owed by the UK taxpayer, is shifting its focus back towards its UK retail and commercial market.

On Monday it announced plans to reduce its stake in US bank Citizens by nearly a quarter, expecting to raise more than $3billion (£2.2billion) from a sale of 115 million shares plus a potential 17.25 million shares in an over-allotment option.

Today, RBS announced that offering would now comprise 135 million shares, or 24.7 per cent of Citizens, with the final pricing for the stock sale to be $23.75 per share, raising $3.2billion in total, or $3.7billion including an over-allotment.

The British lender said the proceeds would be used for general business purposes. The move will reduce RBS’s stake in the US lender to below 46 per cent - or around 42 per cent, assuming all shares in the over-allotment option are sold.

The bank has said it is aiming to reduce its Citizens holding to less than a third by the end of the year and expecting to complete its disposal by late 2016.

RBS shares in the FTSE 100 index were 6.6p lower this morning at 345.7p.